On Tuesday night this
week, Thunder Bay City Council began its budget deliberation process and there
was a fair amount of grilling of City Administration by councilors with
respect to the overview of where spending and tax rates would be going over the
next few years. Apparently, councilors were
surprised when Administration said that the city had a $20 million annual
infrastructure gap for the next 15 years as well as projected tax increases at
over 3 percent – 3.83 percent for 2020 alone – until 2024. Part of the questioning involved the
standards being applied to estimate the infrastructure gap and clarification was
requested. This of course is a reasonable question given the extremely wide range of
estimates available for infrastructure gaps at least at the national
level.
I tuned in for a bit
on Tuesday night and caught part of an exchange between Councilor Mark Bentz
and City Manager Norm Gale in which Councillor Bentz expressed some disquiet at
the projected tax increases until 2024 being well in excess of increases in the
Consumer Price Index inflation rate. The reply from the City Manager was that the
Municipal Consumer Price Index was not the same as inflation from the Consumer
Price Index and that it was indeed much higher.
So, I decided to do a little digging to see what the source of such a
statement might have been and to see indeed how much higher an inflation rate you
could get for government spending in general.
It turns out the City
of Edmonton actually did a bit of research into this issue and published a
report titled Municipal
Price Index 2018 in which they compared consumer inflation and municipal
inflation from 2012 to the present and provided some forecasts for the future.
It turns out that based on their estimates for Edmonton, the inflation rate for
municipal government services was indeed higher than for consumer prices but as
Figure 1 illustrates, the gap is not as large as one might think. Over the
entire period 2012 to 2019(forecast), the average consumer price inflation rate
for Edmonton was 1.6 percent while the average municipal inflation rate was 2.2 percent for
an average difference of 0.7 percent.
So, what about Thunder
Bay? Well Figure 2 plots the inflation
rate since 2012 for Thunder Bay based on the CPI. It then plots inflation based on the Government
Expenditure Implicit Price Index obtained from the 2018 CIHI National Health
Expenditures Data Appendix A. It then
also plots the municipal inflation rate for Edmonton from Figure 1 and the
annual increases in Thunder Bay’s municipal tax levy. Note that for 2019, the CPI Inflation rate
for Thunder Bay and the GEIPI rate are both assumed to be 2 percent. So, what do we get?
Thunder Bay’s municipal tax levy increases since 2012 and forecast into 2019 are generally all well above any of these measures of inflation including the municipal inflation rate calculated by the City of Edmonton. The average CPI inflation rate for Thunder Bay over the 2012 to 2019f period is 1.5 percent. The inflation rate based on the Government Expenditure Implicit Price Index (GEIPI) is 1.4 percent while the municipal inflation rate for Edmonton is 2.2. The average Thunder Bay municipal tax levy increase for this period was 3.3 percent.
So, unless one is
going to argue that municipal “inflation” in Thunder Bay is nearly double that for
consumer prices – and I would need to see some evidence for that rather than
just a blind assertion by City Administration – then one would have to conclude
that this year’s 3.25 percent proposed increase in the tax levy is too high. Obviously, the rate of municipal inflation is
going to be partly determined by the City in terms of what they negotiate to pay
for various goods and services as well as the choices of what goods and
services to consume or provide.
If we go with the
Edmonton forecast for municipal inflation of 2.7 percent – then to bring the
tax levy down from 3.25 percent to 2.7 percent, there needs to be about $1.7
million dollars in reductions from this year’s proposed tax levy increase. If you want to bring the levy down to a two
percent increase, then there would need to be a $2.4 million reduction in the
proposed levy. So, whichever way you
look at it, we can probably do better than 3.25 percent this year.